.integrysgroup09/2008_companyupdate

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.integrysgroup09/2008_companyupdate

  1. 1. Company Update September 2008 1 1
  2. 2. Forward-Looking Statements This presentation contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. You can identify these statements by the fact that they do not relate strictly to historical or current facts and often include words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” and other similar words. Although we believe we have been prudent in our plans and assumptions, there can be no assurance that indicated results will be realized. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could vary materially from those anticipated. Forward-looking statements speak only as of the date on which they are made, and we undertake no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise. We recommend that you consult any further disclosures we make on related subjects in our 10-Q, 8-K, and 10-K reports to the Securities and Exchange Commission. The following is a cautionary list of risks and uncertainties that may affect the assumptions, which form the basis of forward-looking statements relevant to our business. These factors, and other factors not listed here, could cause actual results to differ materially from those contained in forward-looking statements. Unexpected costs and/or unexpected liabilities related to the Peoples Energy merger; Integrys Energy Group may be unable to achieve the forecasted synergies in connection with the Peoples Energy merger or it may take longer or cost more than expected to achieve these synergies; Resolution of pending and future rate cases and negotiations (including the recovery of deferred costs) and other regulatory decisions impacting Integrys Energy Group’s regulated businesses; The impact of recent and future federal and state regulatory changes, including legislative and regulatory initiatives regarding deregulation and restructuring of the electric and natural gas utility industries and possible future initiatives to address concerns about global climate change, changes in environmental, tax and other laws and regulations to which Integrys Energy Group and its subsidiaries are subject, as well as changes in application of existing laws and regulations; 2 2
  3. 3. Forward-Looking Statements Current and future litigation, regulatory investigations, proceedings or inquiries, including but not limited to, manufactured gas plant site cleanup and the contested case proceeding regarding the Weston 4 air permit; Resolution of audits or other tax disputes with the Internal Revenue Service and various state, local, and Canadian revenue agencies; The effects, extent, and timing of additional competition or regulation in the markets in which our subsidiaries operate; Available sources and costs of fuels and purchased power; Investment performance of employee benefit plan assets; Advances in technology; Effects of and changes in political and legal developments as well as economic conditions and the related impact on customer demand in the United States and Canada; Potential business strategies, including mergers, acquisitions, and construction or disposition of assets or businesses, which cannot be assured to be completed timely or within budgets; The direct or indirect effects of terrorist incidents, natural disasters, or responses to such events; The impacts of changing financial market conditions, credit ratings, and interest rates on our liquidity and financing efforts; The risks associated with changing commodity prices (particularly natural gas and electricity), including counterparty credit risk and the impact on general market liquidity; Weather and other natural phenomena, in particular the effect of weather on natural gas and electricity sales; The effect of accounting pronouncements issued periodically by standard-setting bodies; and Other factors discussed in the 2007 Annual Report on Form 10-K and in other reports filed by us from time to time with the United States Securities and Exchange Commission. 3 3
  4. 4. Non-GAAP Financial Information Diluted Earnings Per Share Information – Non-GAAP Financial Information Integrys Energy Group, Inc. prepares financial statements in accordance with accounting principles generally accepted in the United States (GAAP). Along with this information, we disclose and discuss “diluted earnings per share (EPS) from continuing operations – adjusted,” “forward book value,” and “managerial gross margin,” which are non-GAAP measures. Management uses these measures in its internal performance reporting and for reports to the Board of Directors. We disclose these measures in our quarterly earnings releases, on investor conference calls, and during investor conferences and related events. Management believes that diluted EPS from continuing operations – adjusted is a useful measure for providing investors with additional insight into our operating performance because it eliminates the effects of certain items that are not comparable from one period to the next. Management believes that forward book value and managerial gross margin provide investors with a more complete view of the fair value of the nonregulated contract portfolio and changes therein. Unlike GAAP gross margin, managerial gross margin includes the fair value of contracts that are not currently subject to the derivative accounting rules. Therefore, this measure allows investors to better compare our financial results from period to period. The presentation of this additional information is not meant to be considered in isolation or as a substitute for our results of operations prepared and presented in conformance with GAAP. A reconciliation of non-GAAP information to GAAP information is included either on the slide where the information appears, in the Supplemental Data Package, or in the Appendix. 4 4
  5. 5. Integrys Energy Group – Vision and Mission Vision People creating a premier and growing energy company Mission Provide customers with the best value in energy and related services 5 5
  6. 6. Integrys Energy Group – A Leading Midwest Energy Company Regulated Holding Company Regulated Nonregulated Natural Gas and Other Electric WPS Investments LLC $4 billion market cap 6 6
  7. 7. Prospects for our Future Regulated Utility Growth Regulatory catch-up due to rate case moratoriums from recent acquisitions Increasing investment in environmental and electric renewable projects Increasing investment in natural gas cast iron main replacement Continued investment in American Transmission Company Nonregulated Opportunities Focused expansion into new markets Continuing to gain expertise in renewables Asset management optimization Hedge to lock in margins as soon as practicable, limit speculative trading Enhance Shareholder Value Continuing our strong dividend track record Increasing earnings per share by 6 to 8 percent on an average annualized basis 7 7
  8. 8. Strong and Diversified Regulated Utility Business Serving the Midwest for Regulated service territory over 120 years Stable organic earnings growth Attractive service territories Generation and distribution capital investment program Constructive regulatory approach Delivering superior customer service 8 8
  9. 9. Regulated Utilities Serving Over 2 Million Customers PGL NSG MERC MGUC WPSC UPPCO As of 12/31/2007 Electric Customers 433,000 52,000 Natural Gas Customers 830,000 158,000 207,000 165,000 314,000 Generation capacity (megawatts) 1,757.4 58.9 Natural gas storage (Bcf) 47.3 6.9* 3.6* 5.1 8.1* For the period ending 12/31/2007 Annual electric volumes (million megawatt-hours) 14.8 1.2 Annual natural gas throughput (Bcf) 124.1 25.8 70.5 31.1 78.8 Retail as of 12/31/2007 Natural Gas Natural Gas Natural Gas Natural Gas Natural Gas Electric Electric Estimated rate base/investment ($ millions), IL 1,345 205 Estimated rate base/investment ($ millions), WI 338 1,288 Estimated rate base/investment ($ millions), MI 170 3 15 84.5 Estimated rate base/investment ($ millions), MN 186 Wholesale as of 12/31/07 Estimated rate base/investment ($ millions) 174 7.5 * Represents contracted storage. Note: Estimated rate base/investment dollars for all companies as of December 31, 2007. Most regulatory authorities use 13-month averages to determine authorized rate base/investments in rate proceedings. 9 9
  10. 10. Regulated Utilities Regulatory Rate Base and ROE PGL NSG MERC MGUC WPSC UPPCO Natural Gas Natural Gas Natural Gas Natural Gas Natural Gas Electric Electric Retail last authorized, IL/MN Rate base/investment ($ millions) 1,212 182 125 Allowed ROE 10.19% 9.99% 11.71% Authorized regulatory equity % 56.00% 56.00% 50.00% Date of decision 2/5/2008 2/5/2008 7/29/2003 Retail last authorized, MI (2) Rate base/investment ($ millions) 170 2 14 87.3 Allowed ROE 11.40% 14.25% 10.60% 10.75% Authorized regulatory equity % 44.89% 42.40% 56.39% 54.93% Date of decision 3/12/2003 6/7/1983 12/4/2007 6/27/2006 Retail last authorized, WI (1) Rate base/investment ($ millions) 352 1,241 Allowed ROE 10.90% 10.90% Authorized regulatory equity % 57.46% 57.46% Date of decision 1/11/2007 1/11/2007 Wholesale last authorized Rate base/investment ($ millions) 168 7.7 Allowed ROE 11.00% (3) Authorized regulatory equity % 57.46% Date of decision 11/19/2004 Notes: (1) - Authorized rate base includes $475 million of construction work-in-progress. (2) - MGUC's last rate case was settled by previous owner, with no value stated for rate base/investment (12/31/07 estimated value represented here). (3) - Authorized regulatory equity percent is equal to retail actual equity percent. - All rates are based on individual contracts with customers, consequently no allowed ROE, and authorized equity percent applies. 10 10
  11. 11. Investing in Regulated Utility Capital Projects (Millions) 2008 2009 2010 Total Capital Expenditures for Regulated Utility Operations $ 492 $ 512 $ 409 $ 1,413 Estimated Depreciation for Regulated Utility Operations 202 219 236 657 Net Growth in Rate Base Investment $ 290 $ 293 $ 173 $ 756 11 11
  12. 12. American Transmission Company Service territory ATC key operating statistics 230kV-344kV 345kV-499kV Below 230kV Over $2.5 billion in transmission assets Announced in 2007 plans to spend $2.8 billion over 10 years Authorized ROE: 12.2% on 50% equity Rate design includes true-up mechanism and return on CWIP 12 12
  13. 13. ATC – Investment in Net Plant $4,000 Millions $3,500 $3,570 $3,503 $3,398 $3,304 $3,245 $3,000 $3,120 $2,972 $2,869 $2,500 $2,713 $2,494 $2,000 $2,181 $1,841 $1,500 $1,000 $500 $- E E E E E E E E E E A A 08 09 10 11 12 13 14 15 16 17 06 07 20 20 20 20 20 20 20 20 20 20 20 20 Source: ATC 2007 Annual Report, p. 15; accessible at http://www.atcllc.com/documents/AR_single_FNL.pdf 13 13
  14. 14. Weston 4 Project Weston 4 Project overview 500 MW low sulfur coal-fired base-load generation facility In service 1st quarter 2008, full commercial operation June 30, 2008 Dairyland Power Cooperative owns 30% interest in Weston 4 Earned POWER Magazine’s 2008 Plant of the Year Approximate construction cost: award $1,600 per kilowatt See: http://www.powermag.com/ArchivedArticleDispla Estimated construction cost for y2.aspx?a=32-CS_Plant&y=2008&m=august similar plant today: $2,500-$3,000 per kilowatt 14 14
  15. 15. Wisconsin Public Service Rate Case Wisconsin Jurisdiction Filed for $117.2 million increase in retail electric rates for 2009, plus an adjustment for fuel related costs, in 2010. Staff proposed $100.1 million increase in retail electric rates for 2009 and 2.0%, plus an adjustment for fuel related costs, in 2010. Amended Request Staff Proposed Rate Base/Investment: $1,389,959,000 $1,350,097,000 Return on Equity: (company requested 11.5%) 10.9% 10.7% Equity Component: 58% 53.4% Filed for $11.7 million increase in retail natural gas rates in 2009 and no increase in 2010. Staff proposed $3.75 million decrease in retail natural gas rates. Filed For Staff Proposed Rate Base/Investment: $414,047,000 $434,657,000 Return on Equity: (company requested 11.5%) 10.9% 10.7% Equity Component: 58.1% 53.4% • Filed: April 1, 2008 • Audit: Completed July 28, 2008 • Staff testimony filed August 29, 2008 • Hearings: September 25 and 26, 2008 • Written decision anticipated: December 2008 • Docket number: 6690-UR-119 • Web site: http://psc.wi.gov/apps/erf_search/content/result.aspx 15 15
  16. 16. Michigan Gas Utilities Rate Case In May requested $13.9 million, 5.8%, increase in retail natural gas delivery rates from Michigan Public Service Commission Rate Base/Investment: $204 million Return on Equity: 11.25% Equity Component: 50.01% Requested 4.4% interim rate increase while commission considers request. Interim rate request expected December 2008 at the earliest Final rates expected second quarter 2009 Web site: http://efile.mpsc.cis.state.mi.us/cgi-bin/efile/viewcase.pl?casenum=15549 16 16
  17. 17. Minnesota Energy Resources Rate Case In July requested $22.0 million, 6.4%, increase in retail natural gas delivery rates from Minnesota Public Utilities Commission Rate Base/Investment: $201 million Return on Equity: 11.25% Equity Component: 50% Requested full 6.4% interim rate increase while Commission considers request Interim rates expected in October 2008 Final rates expected in May 2009 Web site: https://www.edockets.state.mn.us/EFiling/ShowFile.do?DocNumber=5405047 17 17
  18. 18. Prospects for Future Growth in Value – Regulated Utilities Wisconsin Public Service Continue construction of natural gas pipeline laterals connecting to the Guardian II pipeline – $75 million project expected to be completed by year-end 2008 Acquire wind farm projects 99 megawatts in Iowa 150 megawatts in Minnesota Regulated Natural Gas Segment Complete rate case process in Michigan and Minnesota to obtain approval for rate requests Acceleration of investment in Chicago infrastructure 18 18
  19. 19. Integrys Energy Services – Snapshot Serve 140,000 Customers Northeast quadrant of US, adjacent portions of Canada, Texas, and Alberta, Canada 32 pipelines and 6 electric markets Service Center locations United States: CO, IL, KY, ME, MI, NH, NY, OH, TX, VA, WI Canada: AB, ON, QC 2007 Annual Sales Data Revenue: $7 billion Natural gas sales: 765 BCF Electric sales: 18.2 million megawatt-hours 19 19
  20. 20. Integrys Energy Services – Prospects for Future Growth in Value Stoneman 50-megawatt coal-fired power plant sold Greater focus on environmentally-friendly projects Winnebago Energy Center Solar installations Dedicated landfill gas pipeline Continued new market penetration 20 20
  21. 21. Potential Financings Long-Term Debt, 2008 Integrys Energy Group, $200 million Wisconsin Public Service, $100 million Peoples Gas, $50 million North Shore Gas, $5 million Long-Term Debt, 2009 Wisconsin Public Service, $100 million Equity No new issuance planned through 2009 Note: Unchanged from May 8, 2008 21 21
  22. 22. Commitment to Strong Balance Sheet and Credit Ratings Current Credit Ratings Standard & Poor’s Moody’s Integrys Energy Group, Inc. Corporate credit rating A- * Senior unsecured debt BBB+ A3 Commercial paper A-2 P-2 Credit facility - A3 Junior hybrid subordinated notes BBB Baa1 * Has not issued a corporate credit rating. 22 22
  23. 23. Recent Dividend Payments Dividends per share $2.68 $2.70 $2.56 $2.60 $2.50 $2.40 $2.28 $2.30 $2.24 $2.16 $2.20 $2.20 $2.12 $2.04 $2.08 $2.10 $2.00 $1.96 $2.00 $1.90 98 99 00 01 02 03 04 05 06 07 E 08 19 19 20 20 20 20 20 20 20 20 20 68 consecutive years of dividends paid 50 consecutive years of dividend increases S&P High Yield Dividend Aristocrat Index Mergent Dividend Achiever Long-term target dividend payout ratio of 60-65% of earnings 23 23
  24. 24. Investment Merits Sound business focus Growing investment opportunities in regulated utilities and American Transmission Company Growing nonregulated business Delivering long-term earnings per share growth – 6% to 8% on an average annualized basis using 2008 as the base Superior dividend track record Financial strength 24 24
  25. 25. Appendix 25 25
  26. 26. Estimated Synergy Savings and External Costs to Achieve Updated Merger Cost Savings and External Costs to Achieve (Pre-tax Dollars in Millions) 2006A 2007A 2008E 2009E 2010E 2011E Total Total Estimated Synergy Savings - Current – 38 73 89 100 106 406 Estimated Synergies Savings on February 21, 2007 – 29 73 82 88 94 366 Total Estimated Costs to (20)1 (91)2 (35)3 Achieve - Current (9) – – (155) Estimated Costs to Achieve on (20)1 (91)4 (33)5 February 21, 2007 (11) (31) – (186) (1) Includes/included $18.2 million incurred by Peoples Energy. (2) Includes $13.1 million of system write-offs, all of which were capitalized. Overall $54.6 million was capitalized. (3) Anticipate that $6.8 million will be capitalized. (4) Included $34.5 million of system write-offs, of which $11.7 million would have been capitalized. Overall $59 million was anticipated to be capitalized. (5) Anticipated that $6 million would have been capitalized. 26 26
  27. 27. Investing in Capital Projects to Better Serve Our Growing Customer Base Capital Expenditures by Company (Millions) 2008 2009 2010 Total W isconsin Public Service 328 314 199 841 Peoples Gas Light * 114 117 160 391 Upper Peninsula Power 14 48 13 75 Minnesota Energy Resources 18 15 16 49 North Shore Gas 10 10 11 31 Michigan Gas Utilities 8 8 10 26 Subtotal for Utilities 492 512 409 1,413 Integrys Energy Services 35 3 4 42 Integrys Business Support 37 30 13 80 Total Anticipated Capital Expenditures 564 545 426 1,535 American Transmission Company (equity contribution) 35 14 0 49 * Includes accelerated cast iron main replacement program in 2010. 27 27
  28. 28. Estimated Utility Depreciation Depreciation by Company (Millions) 2008 2009 2010 Total W isconsin Public Service $110 $122 $130 $362 Peoples Gas Light and Coke 62 65 73 200 Upper Peninsula Power 6 6 7 19 Minnesota Energy Resources 11 10 10 31 North Shore Gas 6 6 6 18 Michigan Gas Utilities 7 10 10 27 Total for Utilities $202 $219 $236 $657 28 28
  29. 29. Diluted EPS from Continuing Operations – Adjusted – Revised Guidance (This guidance was provided as of 8/7/2008. It does not reflect any changes or events subsequent to that date.) Diluted Earnings Per Share Information - Non-GAAP Financial Information Potential 2008 Diluted Actual 2007 w ith 2008 Forecasts EPS Ranges Actual Low High 2007 Scenario Scenario Diluted EPS from continuing operations $ 2.48 $ 3.33 $ 3.53 Diluted EPS from dis continued operations 1.02 - - Total Diluted EPS $ 3.50 $ 3.33 $ 3.53 71.8 76.9 76.9 Average Shares of Common Stock – Diluted (millions) Information on Special Items: Diluted earnings per s hare from continuing operations , as adjus ted for s pecial item s and their financial im pact on the actual 2007 diluted earnings per s hare from continuing operations and 2008 diluted earnings per s hare from continuing operations guidance are as follows : Diluted EPS from continuing operations $ 2.48 $ 3.33 $ 3.53 Adjustments (net of taxes): Synfuel – realized and unrealized oil option gains /los s es , tax credits , (0.24) - - production cos ts , prem ium am ortization, deferred gain recognition, and royalties Gains on as s et s ales (0.02) - - Integrys Energy Services ' power contact in Maine liquidated in 2005 0.01 - - Goodwill im pairm ent los s - 0.08 0.08 Im pacts of purchas e accounting adjus tm ents due to Peoples Energy 0.14 0.09 0.09 m erger External trans ition cos ts related to Peoples Energy m erger 0.15 0.13 0.13 Diluted EPS from continuing operations – adjusted $ 2.52 $ 3.63 $ 3.83 W eather impact – regulated utilities (as compared to normal) Electric – favorable/(unfavorable) 0.03 - - Natural gas – favorable/(unfavorable) (0.16) 0.11 0.11 Total weather im pact $ (0.13) $ 0.11 $ 0.11 Key Assumptions for 2008: • Normal weather for the remainder of the year • Continued availability of generating units • Impacts of purchase accounting/transition costs related to merger • Anticipated merger synergy savings • Rate relief for our utilities as recently approved by regulators • Excludes any impact of mark-to-market volatility in 2008 (such mark-to-market volatility is expected to include about $20 million of net mark-to-market after-tax losses in 2008 relating to contracts terminating in 2008 that had net mark-to-market after-tax gains recognized in 2007) 29 29
  30. 30. Drivers of Earnings Per Share Guidance Change 2008 Low High Previous Guidance, M ay 8, 2008 $ 3.60 $ 4.05 Revised Guidance, August 7, 2008 3.63 3.83 Difference $ 0.03 $ (0.22) Key Drivers: Regulated Electric Segment – decline in margin due to decreased demand $ - $ (0.15) Regulated Natural Gas Segment – increase in margin, favorable weather $ - $ 0.05 Regulated Natural Gas Segment – increased bad debt expense $ - $ (0.06) Regulated Natural Gas Segment – increased maintenance expense $ - $ (0.09) Other $ 0.03 $ 0.03 30 30

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